Ireland is to launch a major new initiative later this year to attract international startup talent in a bid to carve out a role as Europe's Silicon Valley, the Guardian has learned.

Despite yesterday announcing the harshest public sector cuts in Irish history, the government also confirmed its budget commitment for its substantial development agencies.

Enterprise Ireland, the government-controlled agency which invested €343m (£291m) in startups and commercialisation of research in 2009, will reveal a three-year strategy in December that includes attracting overseas entrepreneurs. By 2013, the agency wants 10% of its client companies to relocate from overseas, tempted by a combination of funding, mentoring, feasibility and access to an international business network.

"You should never waste a good recession," said Tom Cusack, Enterprise Ireland's manager for high potential startups in telecoms and new media. "There's opportunity in adversity. The availability of resources, the costs of property and employees have gone down and individuals are now thinking this is an opportunity to start the idea they've always had. The challenge for any startup is getting that initial funding to get it off the ground."

Enterprise Ireland is also planning a new Y Combinator-style seed fund to support early stage companies, due to be launched in the next few weeks. The pilot will offer small awards to startups from a total fund of €2m, with a board of experienced entrepreneurs including Ray Nolan, who recently sold HostelWorld.com for aboout €500m.

Defending the role of agency against the backdrop of drastic public spending cuts, Cusack said Ireland's future is based on exports.

"The future will be based on indigenous companies exporting out of Ireland, so it's important that we do continue to proactively invest in internet companies. Internet and games area we've seen huge growth in and it is important we keep the momentum in that space."

Asked whether such heavy government support distorted the market for genuinely viable businesses, Cusack admitted that not all Enterprise Ireland-funded startups might make it without support.

"It's fair to say some of them would be able to build on their own existing networks, but a lot of people starting a business don't have that," he said. "In some ways it is an unfair advantage but we have to play on that. And they need more hand holding than a UK company might because the domestic market is quickly saturated, so it has to be all about international growth."

Ireland has already used a low corporation tax of 12.5% to attract an impressive roster of multinational tech firms, including Google, Microsoft, Apple, Facebook, Intel, HP and Dell.

Despite pressure from Europe, Ireland has confirmed that the low tax rate, which it describes as "the cornerstone of its pro-enterprise economy", will stay. With it will remain the controversial 'Double Irish' manoeuvre that, in combination with various accounting devices, allows multinationals to reduce their corporate tax bill to as little as 2.4%.

Tech Weekly visits Dublin to check out the local startup scene. The city has a thriving tech community and is home to many international tech companies. But will this continue as the Irish economy receives an €85bn bailout?